Pre-Budget Report 2009

The chancellor published his 2009 Pre-Budget report on 9 December 2009. The chancellor’s statement, full Pre-Budget report and accompanying documents are all available on the Treasury’s website.

The key points of interest are highlighted below, and our response to the Pre-Budget statement is available here. 

Chapter 3: Reforming financial services

Restoring stability for a strong economy (pages 43 & 45)

  • The report listed a range of measures the government has taken to promote financial stability, and went on to say that the focus for banks should now be on rebuilding their funding portfolios through private sector solutions, helped by the guaranteed debt they already hold and can roll over for years to come. However, to sustain confidence in light of the continued uncertainty, the government announced that it will allow a short-term extension to the Credit Guarantee Scheme of two months subject to State aid approval.
  • The report noted the importance of lenders being able to have access to a diverse range of funding sources, including securitisation markets. On mortgage-backed securities, the government will explore ways of encouraging more sustainable, transparent and standardised UK mortgage-backed securities markets, working with the Bank of England and the FSA through the Council for Financial Stability, and in discussion with issuers and investors, in order to establish a broader investor base and lay the foundations for stronger markets in the future. The government will update progress on this at Budget 2010.
  • The government also wishes to facilitate a robust regulated covered bond market in the UK, and will consult early in 2010 on supplementary rules where greater clarity may be warranted on issues such as asset quality and asset capability standards for regulated covered bonds.

Promoting and ensuring a fair deal for consumer (pages 53-54)

  • The Treasury's Reforming financial markets consultation announced it would convene an expert group of key stakeholders to advise on the strategic issues affecting building societies. The Pre-Budget report welcomed the progress of this group and urged the sector to identify and pursue opportunities for achieving efficiencies through shared services, but did not recommend moving towards a heavily integrated continental model given the potential impacts on competition and diversity. The government also welcomed the work towards a sector-led pooled funding vehicle and strongly encouraged the sector to continue to seek new ways to raise core capital.
  • The government will introduce a specific governance code for building societies, and other financial mutuals. It will consider the introduction of a regular independent review of adherence to this code.

Empowering consumers (page 55)

  • The government and the FSA will provide £20 million in 2010-11 to fund the national rollout of the Money Guidance service from spring 2010. Government also intends to commit at least 25% and up to £100 million of funds expected to be release through the Dormant Accounts Scheme over a number of years to support the deliver of this service.

Protecting consumers (pages 56-57)

  • The Citizens Advice Bureau will receive further funding of £5 million in 2010-11.
  • The government will work with consumer groups, the OFT and the banks to agree a new framework that will make bank charges fairer, simpler and more transparent. The report noted that if a voluntary approach did not result in a fair outcome for consumers, the government would take action to deliver change.
  • The government believes that more can be done to drive up the standards of complaints handling of firms. The FSA, OFT and FOS will publish a discussion paper in February 2010 setting out the action they are taking, including:
    • improving the way that the three bodies work together to better identify conduct risks that might lead to consumer detriment;
    • identifying and handling widespread issues and clarifying the roles and responsibilities of each body; and
    • increasing the focus of regulators on facilitating redress through supervision and enforcement action.

Chapter 5: Achieving fairness and providing opportunity

Helping homeowners and housing (pages 86-88)

  • Both the Pre-Budget report and a statement issued by Communities and Local Government (CLG) suggests that over 330,000 home-owners have received help or advice with their mortgage since April 2008, and that 135,000 households are benefiting from lender forbearance, including 6,000 in an arrangement equivalent to the Homeowner Mortgage Support scheme (HMS). The report and statement also refer to our revised forecast for repossessions.
  • The standard interest rate used to calculate Support for mortgage interest (SMI) will be maintained at 6.08% for a further six months. At the end of this period the government intends to move towards a fairer, more affordable approach, that more closely reflects mortgage interest rates.
  • The stamp duty holiday announced in 2008 for houses costing up to £175,000 will end as planned on 31 December 2009.
  • The government will increase the development of HomeBuy Direct homes in 2010-11 by moving £100 million of unallocated funds forward from this year to 2010-11 and prioritising housing for first-time buyers with the Kickstart housing delivery programme. This will provide an investment of over £150 million in HomeBuy Direct that year and an increase of around 3,000 homes above the original target of 10,000.
  • The government will issue a consultation early in 2010 to consider the contribution the private rented sector could make to addressing demand and increasing housing supply, and any barriers to investment.
  • The report set out how the government intends to support housing supply through the recovery, including:
    • bringing forward more land for development;
    • ensuring cumulative regulation does not unduly constrain house building;
    • promoting a strong and diverse house building industry;
    • enhancing the role of local authorities: and
    • deliver effective and co-ordinated infrastructure.

Delivering fairness through a modern tax system (page 94)

  • The inheritance tax allowance will be frozen at £325,000 in 2010-11

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